Bankers who take government bail-outs to stay afloat should be paid no more than the civil servants who saved their business, said Nassim Nicholas Taleb, author of “The Black Swan.”
Individuals in positions of power, including those who work in the financial system, must be held accountable for their decisions and have more “skin in the game,” Taleb said at an event in London yesterday. He also advocated clawing back bonuses of highly paid executives who contribute to the failure of a firm.
“If you do well, I might say ‘take 50 percent of my income as a bonus,’” Taleb said. “But, I’d be a fool not to take at least a third of yours if you do badly.”
The Financial Services Authority, the U.K. industry regulator, told bank executives in a letter last month that bonuses must reflect recent scandals, and that clawbacks should be sought from those involved. Robert Diamond, former Barclays Plc chief executive officer, resigned and lost 20 million pounds ($32 million) in bonuses after public and political outcry over the bank’s role in manipulating benchmark interest rates.
Lloyds Banking Group Plc, partially owned by the U.K. government, is considering scrapping annual bonuses for senior bankers in favor of 10-year incentive awards linked to the firm’s share price, a person with knowledge of the discussions said in October.
Investment bankers and traders at European banks should expect at least a 15 percent cut in pay this year, while U.S. lenders may leave compensation unchanged, three consultants surveyed by Bloomberg said.
European taxpayers still haven’t been completely reimbursed for bailing out firms such as Royal Bank of Scotland Group Plc and Amsterdam-based ING Groep NV, and the region’s lenders face further losses amid rate-rigging and money-laundering scandals. As a result, regulators and legislators are capping bonuses and forcing banks to defer more compensation and claw back pay.
The EU is seeking to cut variable pay as part of politicians’ quest to make lenders more like utilities than private money-making machines. The bloc’s 27 member nations plan to implement rules on bank-capital requirements next year that include caps on bonus size relative to salary.
Othmar Karas, the EU lawmaker sponsoring the bill, has proposed restricting payouts to 100 percent of salary. The limits haven’t been agreed to yet.